ASF header



AFC Uzbekistan Fund February 2023 Update


Dear Investors and Friends,

February was a quiet month in Uzbekistan, with the big capital markets news being that Kuvasoy Cement, a Fergana Valley based cement producer, will be buying the government stake in nearby glass producer, Kvarts. On another note, with Uzbekistan’s annual first-quarter energy shortage now behind us as the weather forecast calls for 27 degrees Celsius next week, industrial activity should spike over the coming months as capacity utilisation across industries returns to more normal levels. The February 2023 fund NAV fell to an estimated USD 1,767.5 (-0.1%) or +76.7% since inception on 29th March 2019.


AFC Uzbekistan Fund valuations as of 28th February 2023:

 Estimated weighted harmonic average trailing P/E (only companies with profit):

 Estimated weighted harmonic average P/B: 1.02x
 Estimated weighted portfolio dividend yield: 3.97%


Kvarts gets privatised

The privatisation roadmap in Uzbekistan has been a bumpy one over the past few years. The initial plan for the largest glass producer in Uzbekistan, Kvarts (TSE: KVTS), located in the Fergana Valley, was for it to undergo privatisation through the stock exchange (Kvarts was listed on the Tashkent Stock Exchange on 11th April 2018 where approximately 7.5% of the company’s shares were sold to the public in two offerings). However, in time KVTS was removed from the list of companies to be privatised through the exchange. Not long thereafter, there were rumours in Tashkent that a Turkish company would be acquiring the company, however, that never came to fruition.

Finally, on 13th February 2023 UzSAMA, the Agency for State Asset Management, announced that publicly listed Kuvasoy Cement (TSE: KSCM) would be purchasing 89.78% of the shares in KVTS for USD 23.3 million, an 11% discount to the closing price of the shares prior to the announcement.

KSCM is majority owned by the United Cement Group, a Cyprus-registered holding company with various industrial interests in Kazakhstan, Kyrgyzstan, and Uzbekistan. Last year United Cement Group conducted a similar transaction by purchasing 86.9% of Qizilqum Cement (TSE: QZSM) from the Uzbek government as the company solidifies its position in the country’s cement sector, also owning a majority share of Bekobod Cement (TSE: BECM), located in the same city as publicly listed steel company, Uzmetkombinat (TSE: UZMK).

We would have preferred the shares in KVTS to have been sold to the general public, especially as a majority stake in the company was up for sale, as this could have given the opportunity for Uzbekistan to showcase its seriousness in both establishing a robust privatisation schedule, and allowing for non-state management to clean up operations. Further, the company’s debt to equity level has dropped significantly from 1.7x in December 2021 to 0.83x as of September 2022 as the company’s new floating glass production lines ramp up operations. We have been watching the company’s debt level closely since KVTS used to pay great dividends but stopped once KVTS leveraged to expand its production capacity. With the company’s debt/equity ratio, we believe a return to an attractive dividend payout is not far off.

While the privatisation of the company to United Cement Group isn’t ideal in our eyes for the development of Uzbekistan’s capital markets, we are currently small shareholders of both KVTS and KSCM and should therefore benefit from future efficiencies generated from United Cement Group’s management, as well as future capacity upgrades as KVTS has the potential to become a leading Central Asian glass producer, exporting throughout the region.

U.S. Secretary of State to visit Uzbekistan

We have written in the past about our thesis for the developing multi-polar world we live in and specifically what we dub the “New Fertile Crescent” region, which stretches from the Middle East, up through Central Asia and encompasses Russia, China, Turkey, and Iran among others.

As this new multi-polar world forms, we firmly believe Central Asia will be aligned with China and Russia, due to proximity, logistical constraints, cultural influence, and of course China and Russia being the region’s top trading partners. However, we also foresee increasing interest from western countries to attempt to put a proverbial thorn in China and Russia’s side by trying to gain influence in the region and fracture the current status quo. This is likely to ultimately be unsuccessful, but it is something we keep a close eye on as we hope for continued regional stability and economic growth. Of course, it doesn’t hurt Central Asian countries to play one side off against the other in order to maximise their own leverage and economic benefit, but they are clearly more “eastward than westward leaning”.

Thus, on 1st March 2023 Secretary of State, Anthony Blinken visited Uzbekistan and met President Mirziyoyev to discuss bilateral cooperation. This is his first trip to Central Asia as Secretary of State, and he is visiting Uzbekistan after having attended the C5+1 Ministerial meeting in Astana where representatives from Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, and Uzbekistan attended.

Having crisscrossed Uzbekistan several times since 2018, mainly for meeting with management of the fund’s holdings, two regions of the country have alluded me – Karakalpakstan and Khorezm. Karakalpakstan is home to the Aral Sea and Khorezm, the ancient city of Khiva. Therefore, over the last weekend in February, I flew to Nukus in Karakalpakstan and then took a three-hour scenic drive south through the desert along the Turkmenistan border, where I passed several hundred-year-old hilltop fortresses on my way to Khiva. It was a nippy minus 12 degrees Celsius, but well worth it for Khiva was void of tourists, a stark contrast to the hordes that are there in warmer months. For those who intend to visit Uzbekistan, Khiva should most certainly be on your list.



(Source: AFC Research)



AFC Uzbekistan Fund Marketing Information as of the end of January 2023